Signs of the Times: More start-ups and CEOs switching industries show improving economy

The percentage of jobless managers and executives starting their own firms reached double digits for the first time since 2002, according to outplacement firm Challenger, Gray & Christmas Inc.’s first-quarter 2004 Job Market Index. At 10.1 percent, the period’s start-up rate was 51 percent higher than the 6.7 percent rate recorded in the fourth quarter of 2003. The latest figure is the highest since 10.6 percent of jobless managers and executives started businesses in the third quarter of 2000.

The Challenger survey found that 88 percent of those starting a business were older than 40, up from 74 percent in the fourth quarter. “These older individuals may have the most confidence in their abilities to establish a business. Not only do they have years of experience and business know-how, but through their careers they have probably established an extensive list of professional contacts,” says John A. Challenger, the company’s chief executive officer. “The economy is finally starting to re-energize. Interest rates on loans are still low. Even if one’s retirement savings were damaged during the slump, the chances of rebuilding them entirely with a traditional salaried position are slim. Why not risk building a business that could strike it rich?”

Increased start-ups, he says, will be essential to sustaining the country’s economic health. “We are at a point where more and more jobs are going overseas. One way to create new jobs is through new business ventures and a commitment to innovation. It was the rapid growth of dot-com start-ups that reignited the economy in the 1990s. It probably will be start-ups and small businesses that generate the next job boom.” The number of service sector jobs moving overseas is expected to reach 588,000 by 2005, up from 100,000 in 2000.

The CEO switch

An improving economy may have been behind a 41 percent surge in chief executive officer turnover in March, Challenger, Gray & Christmas says. “A growing number of companies are transitioning from a business strategy focused on surviving the economic slump to one that stresses expansion and innovation,” CEO Challenger says. The firm’s March report shows that 72 CEO departures were announced in March, compared with the 51 announced in February and 50 CEO changes in January.

The March figure is the largest since Challenger resumed its tracking of CEO departures in December 2003. Nearly three-quarters of the CEO changes—71 percent—occurred in the service, health care, financial and technology sectors, all of which are beginning to see improvement, Challenger says. “It is not unusual for a company to change leadership as it moves from one phase of its operations to another. In many cases, it is necessary,” he notes.

A different picture

The picture was far different as recently as the fourth quarter of 2003, when the percentage of jobless managers and executives willing to start new businesses or switch industries was declining. Of the 3,000 discharged managers and executives surveyed, on average only 6.7 percent decided to start their own businesses in the fourth quarter. This was about equal to the 2003 average of 6.8 percent. However, in 2002, an average of 9.6 percent of jobless managers and executives started their own businesses each quarter. And in 1991 and 1992, following the last recession, the average start-up rate was 15 percent.

The percentage of job seekers willing to switch industries also fell in the fourth quarter of 2003, when 46 percent of jobless managers and executives changed industries, down from 51 percent in the same quarter a year earlier. In 1991 and 1992, an average of 52 percent of job seekers changed industries. In the third quarter of 1991, the rate of industry switching reached a record high of 61 percent, a figure, says Challenger, that has not been achieved since. “The time for playing it safe has passed,” he says. “With so many industries moving jobs overseas, some of the displaced workers in America will have no choice but to consider an industry change if they want to find employment.”